Dark Money

Source

Dark Money

Background

In the politics of the United States, dark money refers to political spending by nonprofit organizations - for example, 501(c)(4) (social welfare) 501(c)(5) (unions) and 501(c)(6) (trade association) groups - that are not required to disclose their donors. Such organizations can receive unlimited donations from corporations, individuals and unions. In this way, their donors can spend funds to influence elections, without voters knowing where the money came from. Dark money first entered politics with Buckley v. Valeo (1976) when the United States Supreme Court laid out Eight Magic Words that define the difference between electioneering and issue advocacy.

According to the Center for Responsive Politics (CRP), spending by organizations that do not disclose their donors has increased from less than $5.2 million in 2006 to well over $300 million in the 2012 presidential cycle and more than $174 million in the 2014 midterms." The New York Times editorial board has opined that the 2014 midterm elections were influenced by "the greatest wave of secret, special-interest money ever raised in a congressional election." CRP also noted that the 2010 landmark case, Citizens United v. FEC, marked the turning point when dark money contributions surged, stating "there are other groups now free to spend unrestricted funds advocating the election or defeat of candidates. These groups contend that they are not required to register with the FEC as any sort of PAC because their primary purpose is something other than electoral politics. This spending itself isn't new. But the use of funds from a virtually unrestricted range of sources, including corporations, began with the most recent court rulings."

Etymology

The term was first used by the Sunlight Foundation to describe undisclosed funds that were used during the United States 2010 mid-term election. An example of the usage of the term "dark money" can be seen in a letter of resignation to President Donald Trump, by former Federal Election Commissioner (FEC), Ann Ravel: "Since 2010, well over $800 million in dark money has been spent in competitive races. At the same time, elections have become more and more expensive. Most of the funding comes from a tiny, highly unrepresentative part of the population."

Activities and Influence

The rise of dark money groups was aided by the U.S. Supreme Court decisions in FEC v. Wisconsin Right to Life, Inc. (2008) and Citizens United v. FEC (2010). In Citizens United, the Court ruled (by a 5-4 vote) that corporations and unions could spend unlimited amounts of money to advocate for or against political candidates.

In some elections, dark money groups have surpassed traditional political action committees (PAC) and "super PACs" (independent-expenditure-only committees) in the volume of spending. In 2012, Freedom Partners [Koch brothers] had the ninth-highest revenues among all U.S. trade associations which filed tax returns that year, more than "established heavyweights" such as the American Petroleum Institute  [see also: Justice Barrett's Ties to Shell Oil and the American Petroleum Institute Are Far Deeper Than Reported],  the Pharmaceutical Research and Manufacturers of America (PhRMA), and the United States Chamber of Commerce.

Freedom Partners largely acted as a conduit for campaign spending; of the $238 million it spent in 2012, 99 percent went to other groups, and Freedom Partners itself did not have any employees. This was a major distinction between other high-revenue trade associations, which typically have many employees and devote only about 6 percent of spending to grants to outside groups. In 2014, Freedom Partners was identified as the "poster child" for the rise of dark money. The largest and most complex network of dark money groups are funded by conservative billionaire business magnates Charles and David Koch; the Koch brothers' network accounted for about a quarter of dark money spending in 2012.

Approaching the 2018 midterm elections, in mid-September, just 15 groups accounted for three-quarters of the anonymous cash.

2010 Election Cycle

According to the Center for Responsive Politics, dark money (which it defined as funds from outside groups that did not publicly disclose donors, plus groups that received a substantial portion of their contributions from such nondisclosing groups) accounted for nearly 44% of outside spending in the 2010 election cycle. It was estimated that dark money accounted for around $127 million for this cycle.

2012 Election Cycle

In the 2012 election cycle, more than $308 million in dark money was spent, according to the Center for Responsive Politics. An estimated 86 percent was spent by conservative groups, 11 percent by liberal groups and 3 percent by other groups.

The three dark money groups which spent the largest sums were Karl Rove's American Crossroads / Crossroads GPS ($71 million), the Koch brothers' Americans for Prosperity ($36 million) and the United States Chamber of Commerce ($35 million), all conservative groups. The three liberal groups with the largest dark-money expenditures were the League of Conservation Voters ($11 million), Patriot Majority USA, a group focusing on public schools and infrastructure ($7 million), and Planned Parenthood Federation of America, Inc. (almost $7 million).

2014 Election Cycle

The 2014 election cycle saw the largest amount of dark money ever spent in a congressional election; The New York Times editorial board described 2014 "the greatest wave of secret, special-interest money ever." On the eve of the election, Republican-leaning dark money groups dominated, with $94.6 million in expenditures, exceeding dark money expenditures by Democratic-leaning dark money groups ($28.4 million), and by expenditures that could not be classified ($1.9 million). Karl Rove's dark money group Crossroads GPS alone spent over $47 million in the 2014 election cycle.

In the Senate elections, dark money spending was highly concentrated in a handful of targeted competitive states, and especially in Alaska, Arkansas, Colorado, Kentucky, and North Carolina. In the eleven most competitive Senate races, $342 million was spent by non-party outside groups, significantly more than the $89 million spent by the political parties.

In the 2014 Kentucky election, a key player was the "Kentucky Opportunity Coalition," a group supporting Mitch McConnell, Republican of Kentucky, whom The New York Times editorial board has described as "the most prominent advocate for unlimited secret campaign spending in Washington." The Kentucky Opportunity Coalition, a 501(c)(4) "social welfare" group, raised more than $21 million, while McConnell raised about $32 million and McConnell's opponent, Democratic candidate Alison Lundergan Grimes, raised about $19 million. According to a Center for Public Integrity analysis of data provided by advertising tracking firm Kantar Media/CMAG, the group ran more than 12,400 television advertisements. Every Kentucky Opportunity Coalition's television advertisements mentioned either McConnell or Grimes; overall, about 53 percent of the group's ads praised McConnell while the rest were attack ads against Grimes. The Kentucky Opportunity Coalition relied heavily on political consultants in Washington, D.C. and Virginia linked to Karl Rove's Crossroads groups, and received $390,000 in a grant from Crossroads GPS. Described as "mysterious," the group was listed by a Post Office box, and the only name formally associated with the group was political operative J. Scott Jennings, a deputy political director in the George W. Bush administration, a worker for McConnell's previous campaigns. Melanie Sloan of the watchdog organization Citizens for Responsibility and Ethics in Washington said that the Kentucky Opportunity Coalition was "nothing more than a sham."

Dark money also played a role in other competitive Senate seats in 2014. In ten competitive Senate seats, the winners had the following in dark-money support, according to an analysis by the Brennan Center for Justice at New York University School of Law:

Dark money - 2014 election cycle - Senate seats.
R: Republican Party; D: Democratic Party. a Dark money support as % of nonparty outside spending in support of that candidate.
Winning Candidate	Dark Money Support	% Dark Money Support a
Thom Tillis (R-NC)	$22,888,975	81%
Cory Gardner (R-CO)	$22,529,291	89%
Joni Ernst (R-IA)	$17,552,085	74%
Mitch McConnell (R-KY)	$13,920,163	63%
Tom Cotton (R-AR)	$12,502,284	65%
David Perdue (R-GA)	$11,098,585	86%
Dan Sullivan (R-AK)	$10,823,196	85%
Pat Roberts (R-KS)	$8,454,938	78%
Gary Peters (D-MI)	$4,226,674	28%
Jeanne Shaheen (D-NH)	$3,478,039	35%
Total	$127,475,231	71%

In North Carolina, the pro-Tillis group "Carolina Rising" received nearly all (98.7%) of its funds from Crossroads GPS; the Center for Responsive Politics highlighted this as an example of how Crossroads GPS, a 501(c)(4) group, "evades limits on political activity through grants" to other 501(c)(4) groups. In the 2014 cycle, Crossroads GPS also gave $5.25 million to the United States Chamber of Commerce, $2 million to the American Future Fund, and $390,000 to the Kentucky Opportunity Coalition. In total, Crossroads GPS spent more than $13.6 million on grants to other groups, which it described as being for the purposes of "social welfare."

In 2014, the Democratic Party-aligned dark money group Patriot Majority USA, a 501(c)(4), spent almost $13.7 million on "direct and indirect political campaign activities," airing 15,000 television ads in targeted Senate races. About half of the $30 raised by the group came from five anonymous donors. The group was led by Craig Varoga, "a staunch ally" of Senate Minority Leader Harry Reid, Democrat of Nevada.

In Alaska, Mark Begich was "one of the few Democratic candidates to come close to receiving as much support from dark money as his Republican opponent." The pro-Begich Alaska Salmon PAC, funded entirely by the League of Conservation Voters and its Alaska affiliate, spent funds in support of Begich.

2016 Election Cycle

According to the Center for Responsive Politics, by October 2015, $4.88 million in dark money had already been spent for the 2016 election cycle, "more than 10 times the $440,000 that was spent at this point during the 2012 cycle." The money was spent by six groups - five conservative groups (including the United States Chamber of Commerce, which spent $3 million, and Americans for Prosperity, which spent $1.5 million) and one liberal group (Planned Parenthood Federation of America, Inc., which spent just under $75,000).

According to Richard Skinner of the Sunlight Foundation, "the focus of early dark money being spent in the 2016 cycle" is on competitive U.S. Senate elections and some U.S. House of Representatives races. However, dark money also is playing a role in the 2016 Republican presidential primaries; by June 2015, at least four Republican presidential candidates were raising funds via 501(c)(4) organizations: Bobby Jindal's America Next, Rick Perry's Americans for Economic Freedom, John Kasich's Balanced Budget Forever, and Jeb Bush's Right to Rise.

2018 Election Cycle

In September 2018, the Supreme Court ruled against a 40-year FEC dark money loophole, requiring "independent expenditure" groups disclose donations over a certain amount. Reports revealed that during the 2018 midterm elections, dark money spending by liberal groups accounted for about 54 percent during the election cycle, outpacing conservative and nonpartisan groups spending, which claimed 31 percent and 15 percent, respectively.

Comparison To (and Relationship with) Super PACs

Dark money (501(c)) groups and super PACs compared a
a Source: [2015-10-30] Sunlight Foundation, The difference between super PACs and dark money groups.
	Super PACs	Dark Money Groups
Type of entity	Campaign committee (regulated by FEC)	Nonprofit (regulated by IRS)
Disclosure of contributors required?	Yes	No, except for independent expenditure groups over a certain amount
Disclosure of expenditures required?	Yes, through filings with FEC and sometimes tax filings with IRS (Tax filings are typically delayed by year or more; often submitted long after elections have ended)	Yes, only through tax filings with IRS (Form 990s) (Typically delayed by year or more; often submitted long after elections have ended)
Limits on dollar amount of contributions?	None	None
Can be wholly political?	Yes	No (political activity cannot be majority of expenditures, but can make up to 49.9 percent of expenditures)
Coordination with candidates?	Impermissible	Impermissible

501(c) "dark money" groups are distinct from super PACs. While both types of entity can raise and spend unlimited sums of money, super PACs "must disclose their donors," while 501(c) groups "must not have politics as their primary purpose but don't have to disclose who gives them money." However, a single individual or group can create both types of entity and combine their powers, making it difficult to trace the original source of funds. ProPublica explains: "Say some like-minded people form both a Super PAC and a nonprofit 501(c)(4). Corporations and individuals could then donate as much as they want to the nonprofit, which isn't required to publicly disclose funders. The nonprofit could then donate as much as it wanted to the Super PAC, which lists the nonprofit's donation but not the original contributors." In at least one high-profile case, a donor to a super PAC kept his name hidden by using an LLC formed for the purpose of hiding their personal name. One super PAC, that originally listed a $250,000 donation from an LLC that no one could find, led to a subsequent filing where the previously "secret donors" were revealed.

During the 2016 election cycle, "dark money" contributions via shell LLCs became increasingly common. The Associated Press, Center for Public Integrity, and Sunlight Foundation all "flagged dozens of donations of anywhere from $50,000 to $1 million routed through non-disclosing LLCs to super PACs" backing various presidential candidates, including Marco Rubio, Hillary Clinton, Ted Cruz, John Kasich, Jeb Bush, and Carly Fiorina.

Bradley A. Smith, a former FEC chairman who is now with the Center for Competitive Politics, a group that opposes campaign-finance reform, argues that this practice is not problematic, writing that "it is possibly the making of a campaign contribution in the name of another," a violation of existing law.

According to Kathy Kiely, managing editor of the Sunlight Foundation, "untraceable dark money is a preferred tactic of conservatives, while Democrats tend to use traceable super PACs."

Disclosure in U.S. Elections

The first federal law requiring disclosure of campaign contributions, the Federal Corrupt Practices Act, was passed in 1910. By the late 1970s, virtually all states and the federal government required public disclosure of campaign contributions and information on political donors. Most states and the federal government also required public disclosure of information about donors and amounts spent on independent expenditures, that is, expenditures made independently of a candidate's campaign.

In January 2010, at least 38 states and the federal government required disclosure for all or some independent expenditures or electioneering communications, for all sponsors.

Yet despite disclosure rules, it is possible to spend money without voters knowing the identities of donors before the election. In federal elections, for example, political action committees have the option to choose to file reports on a "monthly" or "quarterly" basis. This allows funds raised by PACs in the final days of the election to be spent and votes cast before the report is due.

In addition to PACs, non-profit groups ranging from Planned Parenthood Federation of America, Inc. to Crossroads GPS may make expenditures in connection with political races. Since these non-profits are not political committees, as defined in the Federal Election Campaign Act, they had few reporting requirements beyond the amounts of their expenditures, and until 2018 were not required to publicly disclose information on their donors. As a result, voters did not know who gave money to these groups. Reports have disclosed instances where non-profits were managed by close associates, former staff, or a candidate's family member, and this has led to concern that the candidates benefiting from their expenditures would be able to know who donated the funds to the non-profit group, but the public would not.

For example, in the 2012 election cycle, one organization, the National Organization for Marriage, or NOM, operated two non-profit arms that received millions in donations from just a few donors. It in turn funded several different PACs. While these PACs had to disclose that NOM contributed the funds, they were not required to disclose who gave this money to NOM in the first place.

On March 30, 2012 a U.S. District Court ruled that all groups that spend money on electioneering communications must report all donors that give more than $1,000. However, this ruling was overturned on appeal. In 2018 the U.S. District Court for DC struck down the Federal Election Commission's regulation allowing these groups to conceal their donors if they were engaged in political activity. The Supreme Court later declined to review this decision.

Legislative & Regulatory Proposals and Debate Over Dark Money

Democrats in the United States Congress have repeatedly introduced the DISCLOSE Act, proposed legislation to require disclosure of election spending by "corporations, labor unions, super PACs, and, most importantly, politically active nonprofits." The 2014 version of the DISCLOSE Act would require covered groups, including 501(c)(4), to reveal the source of election-spending donations of $10,000 or more. The bill also targets the use of pass-through and shell corporations to evade disclosure by requiring that such groups disclose the origin of contributions. Senate Republicans, led by their leader Mitch McConnell, "have blocked earlier iterations of the DISCLOSE Act since 2010."

According to Columbia Law School's Richard Briffault, disclosure of campaign expenditures, contributions, and donors is intended to deter corruption.

The Federal Election Commission, which regulates federal elections, has been unable to control dark money. According to the Center for Public Integrity, FEC commissioners are voting on many fewer enforcement matters than in the past because of "an overtaxed staff and commissioner disagreement." The IRS (rather than the FEC) is responsible for oversight of 501(c)(4) groups. The IRS "found itself ill-prepared for the groundswell" of such groups taking and spending unlimited amounts of money for political purposes in the wake of the U.S. Supreme Court's decision in Citizens United v. Federal Election Commission in 2010. The agency particularly "struggled to identify which organizations appeared to be spending more than the recommended 50 percent of their annual budgets on political activities - and even to define what 'political spending' was." When the IRS began looking at nonprofit spending, it was accused of improper targeting in a 2013 controversy.

"With the FEC and IRS duly sidelined" advocates for disclosure turned to the Securities and Exchange Commission (SEC); nine academics from universities across the U.S. petitioned the SEC in August 2011 for the agency to "develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities." The petition received over a million comments in the following month, "a record amount for the SEC, with the overwhelming majority of voters asking for better disclosure." According to Lucian Bebchuk, a Harvard professor of law, economics, and finance who helped draft the petition, the request had drawn the support of "nearly a dozen senators and more than 40 members of the House." Under current SEC regulations, public corporations must file a Form 8-K report to publicly announce major events of interest to shareholders. The Sunlight Foundation, a group which advocates for a comprehensive disclosure regime, has proposed that the 8-K rule should be updated to require that aggregate spending of $10,000 on political activities (such as monetary contributions, in-kind contributions, and membership dues or other payments to organizations that engage in political activities) should be disclosed and made publicly available via the 8-K system.

In 2015, Republicans in Congress successfully pushed for a rider in a 2015 omnibus spending bill that bars the IRS from clarifying the social-welfare tax exemption to combat dark money "from advocacy groups that claim to be social welfare organizations rather than political committees." Other provisions in the 2015 bill bar the SEC from requiring corporations to disclose campaign spending to shareholders, and a ban application of the gift tax to nonprofit donors. The Obama administration opposed these provisions, but President Obama eventually acceded to them in December 2015, with the White House declining to comment. The nonpartisan Campaign Legal Center said in a statement that the dark-money provision ensures "that the door to secret foreign dollars in U.S. elections remains wide open through secret contributions to these ostensibly 'nonpolitical' groups that run campaign ads without any disclosure of their donors."

The Center for Competitive Politics (CCP), chaired by former FEC chairman Bradley A. Smith, opposes legislation to require the disclosure of dark-money groups, saying: "Our view is that many people will be driven out of politics if they are forced to disclose their names and their personal information. The purpose of disclosure is to help people monitor the government, not for the government to monitor the people." The Center for Competitive Politics views "dark money" as a pejorative term, stating that the phrase "evokes an emotional, fearful reaction" and contending that "many of the statistics published on the topic aim to mislead rather than enlighten." The CCP maintains that dark money "comprises a very small percentage of total campaign spending," calculating the percent of money spent in federal elections by organizations that did not provide itemized disclosure of their donors as 4.3% in 2012 and 3.7% in 2014.

In May 2019 the Attorney General of New York Letitia James filed a lawsuit against the Treasury Department and the IRS for failing to respond to information requests about their guidance reducing donor disclosure requirements for certain tax-exempt groups.

Terminology

Terminology- Dark Money

The Sunlight Foundation and the Center for Public Integrity are just two among many organizations and allied journalists that track and criticize "dark money." These groups almost always use the term based on the same understanding as Sunlight's. They typically call 501(c)(4)s "political nonprofits" and often note that 501(c)(4)s can give money to "super PACs" - a new type of group that arose in the wake of Citizens United v. FEC (2010) that can raise and spend unlimited sums on politics, provided they do not coordinate with or donate to a specific political candidate. Although super PACs are required to publicly disclose their donors, they can themselves raise money from 501(c)(4)s, whose original donors need not be disclosed, thereby making the money "dark."

When "the source of political money isn't known, that's dark money," >according to a definitionCenter for Public Integrity. "The two most common vehicles for dark money in politics are politically active nonprofits and corporate entities such as limited liability companies. Certain politically active nonprofits - notably those formed under Sections 501(c)(4) and 501(c)(6) of the tax code - are generally not required to publicly disclose their donors." (Section 501(c)(6) groups are business associations like the United States Chamber of Commerce, some of which make public their corporate dues-paying members in order to enhance their lobbying efforts.)

"Meanwhile, when limited liability companies are formed in certain states, such as Delaware and Wyoming, they are essentially black boxes; the company's name is basically the only thing known about them," the Center for Public Integrity continues. "These LLCs can be used to make political expenditures themselves or to donate to super PACs."

The Center for Responsive Politics, which maintains the popular OpenSecrets.org website, may be the biggest user of the "dark-money" term. According to OpenSecrets.org's definition, "Dark Money refers to political spending meant to influence the decision of a voter, where the donor is not disclosed and the source of the money is unknown. Depending upon the circumstances, Dark Money can refer to funds spent by a political nonprofit or a super PACs." While super PACs "are legally required to disclose their donors, they can accept unlimited contributions from political non-profits and 'shell' corporations who may not have disclosed their donors." In those cases, "they are considered Dark Money groups" by the Center for Responsive Politics.

Bradley A. Smith, a prominent defender of free political speech and a former FEC chairman who now chairs the Institute for Free Speech,   observes that "dark money" is "merely a pejorative label for nonprofits - such as the National Association for the Advancement of Colored People (NAACP), the United States Chamber of Commerce, and Planned Parenthood Federation of America, Inc. - that may not legally make campaign contributions, whose donors are private, and whose political speech is therefore both limited and independent from candidate campaigns." One longtime political operative has offered a more cynical definition: "'Dark money' is money that supports speech the Left wants to silence."

What Else Constitutes "Dark Money"?

If concealment, on purpose or in effect, of the original donors to certain nonprofits is the controlling characteristic of "dark money," then other revenue streams would fairly fit within the definition. These flows, which attract much less attention in the debates over politics and advocacy, go through groups that are tax exempt under Section 501(c)(3) of the Internal Revenue Code. These groups include public charities that take an interest in public policy, such as the Sierra Club  [see also: David Gelbaum - Funding - Sierra Club and Immigration], and the Brookings Institution. Among 501(c)(3) charities that are policy-oriented - that is, not counting groups like art museums, symphonies, and soup kitchens - liberal groups enjoy a roughly three-to-one money advantage, as Capital Research Center's  Citizens United study found. The same study also found that the river of money flowing into public policy debates through these 501(c)(3) groups dwarfs the money flows in the 501(c)(4) and super PAC stream. The latter totaled about a half-billion dollars ($538 million) for the 2013-14 election cycle, whereas in 2014 alone, we counted $9.6 billion flowing through policy-oriented 501(c)(3)s.

Terminology - Fiscal Sponsorship

Fiscal sponsorship refers to the practice of non-profit organizations offering their legal and tax-exempt status to groups - typically projects - engaged in activities related to the sponsoring organization's mission. It typically involves a fee-based contractual arrangement between a project and an established non-profit. ...

In the 501(c)(3) flows that could constitute "dark money," two phenomena are worth examining: fiscal sponsorships and donor-advised funds (DAFs). Fiscal sponsorships essentially allow an existing 501(c)(3) organization to confer its own tax-exempt status on a new project that is supposed to share the existing group's charitable purpose. The sponsored project hasn't achieved its own 501(c)(3) status, and may never even intend to become an independent entity. It may be happy to maintain its dependent existence because that helps to hide what it's doing, and/or it may intend to wage a particular brief political fight and then disappear. These kinds of shadowy projects run counter to the traditional justification for fiscal sponsorship, which was originally portrayed as a temporary measure to "incubate" new 501(c)(3)s that would go on to become independent legal entities.

In other words, fiscal sponsorship is highly susceptible to abuse, and abuses may, in fact, be rife. The scheme certainly can conceal an original donation that may never be publicly linked to the new, sponsored project. And that new project may not last long; short-term, "pop-up" sponsored groups seem increasingly common. ("Pop-up" super PACs are also becoming common.)

So if the sources of the funds spent are concealed, can fiscally sponsored projects be considered "dark?" They certainly seem to fit the OpenSecrets.org definition of "dark money."

Many low-profile, left-of-center 501(c)(3) groups offer fiscal sponsorship as a regular service. They include the large Tides Foundation network, the New Venture Fund (administered by the for-profit and fee-charging Arabella Advisors consulting firm), and the Alliance for Global Justice, as well as the Sustainable Markets Foundation in the environmental field.

Dark Money - Investigative Resources

Additional Reading

• 1. 501(c)(4)s and "Dark Money:" Evolution of (c)(4)s  |  local copy

• 2. 501(c)(4)s and "Dark Money:" Origins of (c)(4)s  |  local copy

• 3. 501(c)(4)s and "Dark Money:" Regulatory Struggles  |  local copy

• 4. 501(c)(4)s and "Dark Money:" A Definition of "Dark Money"  |  local copy

• 5. 501(c)(4)s and "Dark Money:" Donor-Advised Funds  |  local copy

• 6. 501(c)(4)s and "Dark Money:" "Dark Money" Usage  |  local copy

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